What did Martha Stewart know? And when did she know it? These are hardly the most pressing questions to emerge from the collapse of yet another stock and the disgrace of one more CEO, this time at the once high-flying biotech firm ImClone. But after the scandals and meltdowns at Enron and Tyco and the self-serving stock recommendations at Merrill Lynch, the shamed corporate hero has become positively pedestrian. It takes a celebrity touch to hold our interest, and with ImClone we're getting the full weight of high society.

At the center of the latest greedfest is Sam Waksal, an immunologist who turned into a dazzling biotechnology entrepreneur. In 1984 he founded ImClone, a little-known company until it made headlines for an apparent success with a cancer treatment called Erbitux in 1999. Waksal, 54, was always as much salesman as scientist and employed his reputation and charm as a ladder into elite circles that included home-decor guru Stewart, Mick Jagger, actress Mariel Hemingway, financier Carl Icahn and Dr. John Mendelsohn, the cancer-drug pioneer and former Enron board member. Waksal's eclectic posse combined science and celebrity with stock-market speculation. It was an intoxicating lifestyle that the ImClone chief apparently savored.

But Waksal's world was rocked last week when authorities arrived at his elegant loft in lower Manhattan at 6 a.m. and, after allowing the pajama-clad Waksal to change into street clothes, hauled him off to court in handcuffs. The central charge was that Waksal had tried to sell $5 million in ImClone shares and tipped two family members to dump their stock too, after he learned  before the news was made public  that the Food and Drug Administration (FDA) refused to review Erbitux's application.

Waksal never made his stock sale because brokers at Merrill Lynch and then Banc of America Securities refused to execute the trades without checking with ImClone lawyers, who had issued a rule barring employees from trading because of the pending news on Erbitux. But Waksal's father Jack sold $6.7 million worth of ImClone, and his daughter Aliza sold $2.5 million, according to authorities. Sam Waksal's lawyer, Mark Pomerantz, denies any wrongdoing by his client, calling the evidence "circumstantial." Ditto from Jack's lawyer. Aliza's attorney, Stephen Kaufman, could not be reached for comment.

Stewart, who this month became a director of the New York Stock Exchange, was not charged with any crime, but she was widely known as a close friend of Waksal's, and documents provided to congressional investigators revealed that she had sold $228,000 worth of ImClone stock the day before the FDA announced the bad news about Erbitux. Stewart denied any wrongdoing, but shares in Martha Stewart Living Omnimedia have plunged 19% since the news broke, on fears that her image would be sullied by association with Waksal and ImClone.

The biotech firm's stockholders  including 20% owner Bristol-Myers Squibb  have taken a pounding. ImClone shares had doubled in less than a year before hitting $75.45 on Dec. 6. Then they started to fall, and just a month after the FDA's setback for Erbitux on Dec. 28, the stock had tumbled to $20 on its way to Friday's closing price of $8.79--a collapse that has wiped out $4.6 billion of stockholder wealth. Waksal and his physician brother Harlan, 49--who co-founded ImClone and then took over as CEO when Sam resigned last month amid questions about his stock trading  had become multimillionaires from sales of ImClone stock in late 2001.

The ImClone affair deepens a sinkhole of investor distrust that has been weighing on the stock market for months. Of far greater significance to cancer sufferers is that the whole messy episode throws into doubt a drug many had hoped would be a magic bullet for colon cancer soon and other cancers later. ImClone and independent scientists say the drug still has promise (see box), but its consideration for approval has been set back many months, at best.

Among Waksal's celebrity friends, only Stewart has been shown to have sold stock just before the FDA's action against Erbitux. On the same day that Waksal's father and daughter sold their shares, Stewart unloaded all 3,928 of hers. She has acknowledged phoning Waksal that day, and investigators have his phone log, which includes the 1:43 p.m. entry, "Martha Stewart something is going on with ImClone and she wants to know what." The two appear never to have connected. "I did not speak to Dr. Samuel Waksal regarding my sale," Stewart said.

The denial hasn't spared her horrendous publicity. A planned Democratic Senatorial Campaign Committee fund raiser slated to be hosted by Stewart this week was abruptly canceled because of the ImClone scandal. The tabloid press has been flogging Stewart for her ties to Waksal  noting that her daughter Alexis dated him for a time. Stewart used a Merrill Lynch broker, the dashing Peter Bacanovic, 40, another society hobnobber who worked for ImClone from 1990 to 1992.